If residential real estate prices in New York City are shooting toward the stratosphere, developers say they’re having trouble lately finding the ground from which to launch them.
A building boom in the New York City metropolitan area ranked it third in the country in 2004 in the number of housing units approved, according to the U.S. Census Bureau. At 56,873 units, it lagged behind only Atlanta and Phoenix. Relative to the population, those units may be a drop in the bucket. But in a city with well-defined borders, developers must be creative in their search for land to develop.
“I think we have a dire need of development land in New York City,” said Jeffrey Levine, principal of Douglaston Development. “Land is being gobbled up.”
Or, increasingly, cleaned up, particularly in boroughs trying to rehabilitate former industrial sites with environmental problems, often with the help of government subsidies.
Levine is using newly available “brownfields” funding to rehabilitate a polluted industrial site in Williamsburg, Brooklyn, enabling him to create more than 1,000 apartments. He said he believes much of the growth outside of Manhattan is an offshoot of developers searching out large undeveloped parcels.
Eric Bluestone, a partner of the Bluestone Organization, which has also developed a brownfields site in Brooklyn, said he doesn’t believe a shortage of land is driving the white hot real estate market.
“The fact that there is such a demand for housing in New York City is driving up prices,” he said. “There is still land to be developed. It’s just a matter of being able to make the deals.”
Being able to make the deals involves having the cash flow. Some believe that the widespread availability of capital is creating more competition for land, driving up its price.
“You’ve got a lot of people out there chasing deals due to the large amount of capital available especially to people whose access to capital is not usually particularly good,” said David Picket, CEO of Gotham Developers.
That creates a pricing squeeze, said Elan Padeh, president and CEO of the Developers Group, a consulting firm.
“There’s a shortage of developable land at the right price,” he said. “There’s plenty of land out there to be developed it’s just a matter of sellers being a little more realistic in their sales prices.”
Alex Twining, president of Twining Properties, said a correction may be in the offing.
“The odd thing happening now is that land prices have continued to go up while construction costs have also moved up dramatically,” he said. “Typically, rising construction costs means land prices should go down, which I think will eventually happen.”
Twining Properties is collaborating with the Related Companies and MacFarlane Partners on an 800-unit project at 440 West 42nd Street that was originally planned as two rental towers to be built in phases side by side. Now, due to price increases, developers have chosen to go with one condominium and one rental tower, stacked one upon the other.
“By doing condo and rental, you have two different type products, so you can deliver more in one shot,” Twining said. “And you can afford to pay more for the land because the condo pricing is higher.”
Rising land costs have made it difficult to impossible to develop rental units, let alone affordable housing, said Bluestone.
Rezoning has transformed four former industrial areas: Hudson Yards, Greenpoint-Williamsburg, Downtown Brooklyn and West Chelsea. The Department of City Planning said capacity for 30,000 new housing units was created, though it had no figures immediately available for the amount of developable land added.
“With the city’s population at an all-time high, the [Bloomberg] administration is aggressively pursuing a policy of seeking out new areas where opportunities can be created for housing growth,” said Rachaele Raynoff, a department spokeswoman.
A recent study by Regina Armstrong, president of research firm Urbanomics of New York & New Jersey, entitled “Up From the Ruins,” found that the city had land zoned for 500,000 more manufacturing jobs than exist, such that 6 percent of the city’s economy (industrial) laid claim to 15 percent of its land area through zoning.
The study recommended ways to develop one area in each borough currently zoned for industrial such that a total of 64,700 to 86,200 housing units could be added citywide.
But rezoning may not be a panacea. Padeh said neighborhoods can’t be recreated overnight.
“There is some requirement for manufacturing, just as there’s some requirement for affordable housing and rentals as opposed to condos,” he said. “I’m a firm believer in an open market, but you don’t want to rezone everything overnight.”